Opinions put forward at a recent industry forum, lead us to believe that the ‘Uncertainty Shock’ is likely to continue throughout negotiation for Brexit, suggesting a slowdown and curtailment in growth of GDP.
Construction industry growth in 2016 has been predicted at 2.1%, however it is felt that this may drop in 2017 to a level of 1.7%. The general opinion is that we will not go into recession again within the next two years.
Retail growth will continue into 2017, with major purchases being promoted by wage growth at around 2.4%, although economists claim that the Consumer Price Index will remain low at 0.9%. Reasons for this could be that production and operating cost increases are being absorbed into margins. We are not seeing a rise in costs as yet. The pressure on inflation is high and is expected to spike in late 2017 / early 2018 to around 3%.
More policy easing is expected to support spending, particularly into housing, as seen in the Autumn Statement. There have been a rise in planning applications in 2016 for housing and educational establishments, which is likely to balance reduced investment in health.
Construction in hotel and leisure facilities is likely to increase as Brexit unfolds, and as exchange rates remain poor for UK citizens. Inner town regeneration will support growth of discount retail chains.
The development of commercial space in London will remain strong in 2017/18, but is likely to decline throughout the rest of the UK. There is an ongoing ‘industrial renaissance’ in logistics space, which is anticipated to continue into 2018.
According to Bloomberg, the growth and independence of ‘northern power houses’ (e.g. Leeds, Birmingham and Manchester) remains years away.
What does this really mean for the Construction Industry? The main conclusions we can draw from the above statements, are that in 2017 we will see an overall weakening in construction project starts and outputs by around -4% compared to 2016.
London will continue to boom, particularly in affordable and social housing, education facilities and commercial space, giving rise to opportunities for construction companies in this area. Economic growth in 2017 is anticipated to be slow, however, cost of living increases are expected to occur.
Economic improvements are anticipated for 2018, especially in the Construction Industry where growth is expected to be around 2.2%.
Andrew Wilson LLM, MBA, PgDip, BSc(Hons)
Director, THSP Risk Management